Tobacco companies set wholesale hikes that will boost prices by 45 cents a pack

NEW YORK (CNNfn) - Just one week after settling smoking-related health claims with 46 states, three major tobacco companies Monday unveiled the largest cigarette price hike in the industry's history.
Philip Morris Cos. Inc., the nation's largest cigarette maker, R.J. Reynolds Tobacco Co. and Brown & Williamson Tobacco Corp. said the wholesale price for a 1,000 cigarettes would rise by $22.50, which translates into 45 cents per pack at retail.
The companies would not comment on the reason behind the hike, but some analysts had predicted last week's $206 billion proposed settlement between major cigarette makers and 46 states would result in increased tobacco prices.
The price increases will generate about $10 billion in additional annual revenues for the companies, about equal to the amount they need for their first settlement payments next year and other associated costs, Sanford Bernstein analyst Gary Black said.
Shares of Philip Morris (MO) jumped 2-1/2 to 58-1/4, while stock of RJR Nabisco Holdings Corp. (RN) gained 1-3/16 to 31-5/8. The American Depositary Receipts of British American Tobacco Plc. (BTI), which owns Brown & Williamson, fell 3/16 to 18-1/16.
Philip Morris' best-selling brand is Marlboro. Brown & Williamson's lead brands are Kool and Lucky Strike. R.J. Reynolds makes Winston, Salem, Camel and several other brands.
The hikes were expected, according to tobacco analyst Martin Feldman, though were a bit higher than had been predicted.
"None of the money is coming from either the shareholders or the executive salaries," said Ed Sweda, a lawyer at the Tobacco Products Liability Project at Northeastern University in Boston. "It's all coming from their addicted customers, which is consistent with the pattern they've had since litigation began."
Sweda said it was ironic that the companies had spent more than $40 million earlier this year in an effort to kill tobacco legislation in Congress, which would have cost the industry $516 billion over 25 years.
Tobacco ads claimed that people making less than $30,000 per year would have borne the brunt of the price increases needed to pay for it, and that that was unfair. The price increases announced Monday "underscore the industry's hypocrisy from earlier this year, when they pretended to be the friend of their lower-income customers," Sweda said.

FTC to drop "Joe Camel" suit

In a related development, attorneys for the Federal Trade Commission said Monday they would seek to dismiss the government's case against R.J. Reynolds Tobacco over its Joe Camel advertising campaign, in light of the tobacco industry's settlement with the 46 states.
Attorneys for the FTC had argued the Winston-Salem, N.C.-based cigarette company knew its Joe Camel advertising campaign, launched in 1988 to help boost U.S. sales of its Camel cigarette brand, was illegally targeted at young teen-agers.
The tobacco company pulled the ads a year ago -- around the same time the agency had filed its suit. In 1994 the FTC dropped an earlier investigation into the campaign, citing a lack of evidence.
Government officials revived their case because of newly available documents, including memorandums from the company's executives, which officials said proved the company intended to attract young people with the cartoon camel. -- from staff and wire reports